In my School of Entrepreneurship (thesoe.com) we talk about the various functions of your business as offense or defense.
Offense is functions that bring in more business. They include Marketing, Sales, and in our case our Appointment Center.
Defense is functions like Operations, where you spend the money to provide the product or service and it includes Production (manufacturing), Service and Accounting.
If your business is making a good gross profit, but not a good net profit, then you need to cut overhead (‘indirect expenses”) (which would be a defensive move), or sell more business to get above the breakeven that your current cost structure is causing (which would be an offensive move).
Breakeven = Fixed Costs / Gross Profit Margin
If your business wanted to improve its financial situation by cutting costs alone, it can only benefit by the amount you cut. That could be enough to solve your problem. If not, then you need some offense.
Alternatively, you could take offensive and defensive strategies at the same time and re-engineer the financial structure of your company. Let’s say you –
!) Cut some overhead (costs you have to pay even if you sold nothing) to reduce your breakeven.
2) Then you cut some direct costs (costs tied to the production of the product or service that go up when you get busier and down when you get slower) and that improves your gross margin, therefore reducing your breakeven.
3) Then you play a better offense (sales and marketing) and get more business and get farther above your breakeven. The farther north of your breakeven you get the better the margins!
BONUS – you innovate and bring more value to your customers in a way that does not cost you anything and raise your prices a bit as a result.
BOOM – you’re your own turnaround artist! And if you can do that, you’ll probably never be in trouble again.